Of all the responsibilities a small business owner must take on, often the most challenging is taking care of the finances. Money makes the world go round, after all. While you should never become an entrepreneur for financial gain alone, you must make a profit to keep your business dreams alive. The problem is, most new entrepreneurs have very little accounting and money management experience. This lack of knowledge often results in costly blunders. With that in mind, here are ten huge money mistakes that all small business owners should try to avoid.
Quitting That Day Job
The decision to launch your own company can be a life-changing one. However, you shouldn’t allow it to change your life too quickly. Although it takes a lot of work to build up a business, you can’t quit your day job right away. There’s no guarantee that your venture will succeed, so you need this employment to fall back on if things go wrong. If you really don’t have the time to be working a full-time job, then speak to your boss and ask them to reduce your hours for now.
Pricing Products Too Low
Many factors determine whether or not a customer chooses to buy from you, but the price will always be one of the most important. For this reason, it doesn’t matter what you decide to sell; you must make sure that the price is right. If you go too high, then shoppers will go somewhere cheaper, but too low a price means that you’ll struggle to make a profit. The right price will be somewhere in between, so conduct market research to find an affordable and profitable figure.
Using The Same Account
Although it may seem so in the beginning, keeping your company and personal finances in the same bank account is not a good idea. When you have your money mixed together in this way, it makes it almost impossible to figure out what belongs to you and what belongs to the business. This can cause tax issues, as well as overspending on either side. Thankfully, there is a simple remedy to this problem. You just need to open a bank account dedicated to the business.
Making Big Personal Purchases
Everyone knows that you shouldn’t use company money to cover personal expenses. You have to pay yourself a wage or salary and spend that instead. That being said, there will be times when you have to use this personal money to cover a company cost. This is especially common in the earlier days of business. Because of this, you should avoid making any big personal purchases in the first year or so of your venture. This leaves money free for the business to use.
Avoiding The Necessary Expenses
You need money to keep your company afloat. With that in mind, it makes sense why so many business owners do all that they can to keep costs low. The trouble is, some entrepreneurs cut expenses so much that they actually harm their business. You can’t afford to do the same thing. All ventures need certain tools and supplies to stay afloat, from pens and computers to specialist equipment. Avoiding paying these costs means you won’t be able to provide the best service.
Spending Without A Budget
When the time comes to make a business purchase, you must remember to check your budget. It’s impossible to know whether or not you can afford that essential unless you do, after all. If you don’t already have a budget for your company, then it’s vital that you make one. This isn’t necessarily a simple task, but it’s not as complicated as most people imagine. All you need to do is work out how much money you have coming into your business and how much you spend.
Failing To Hire Help
Unless you’re already a financial expert, you should hire one to help you manage your money. Not only will this save you time, but it should cut costs too. An accounting advisor can benefit you in a number of ways, from helping you assess new business ideas to supporting you through the process of selling a venture. It’s important to remember, however, that not all professionals are made equal. Once you’ve decided to hire help, you should access all of your options carefully.
Paying The Bills Late
Every small business has bills to pay. Often these include a mortgage or rent, utilities, supplies, loans, and many more. For the sake of your cash flow, you shouldn’t pay these bills early. That being said, you can’t afford to them late either. Most companies will charge a fee when this happens. If you can’t pay a bill on time for whatever reason, you should call up the relevant company and apologise. Although it won’t always work, they might waive the fee if you do.
Forgetting About Possible Emergencies
Things are always going wrong in the business world. You may have lasted a while without too much trouble, but there will be problems just around the corner. When a disaster results in an unexpected cost, you must make sure that you have the funds to cover it. If you don’t, it could cause further problems. Building an emergency fund, therefore, is absolutely crucial. You must also make sure that you have an insurance plan which covers all of the common risks.
Waiting To Seek Credit
When something goes wrong in your business, borrowing the money you need to fix it is often an option. The trouble is, lenders are much less likely to give money to a company when they truly need it. Lenders must believe that you can repay what you borrow, but they won’t if the company is in trouble. Because of this, you should seek funding when it looks solid. This means that you’ll likely be accepted for a loan or credit card, which you can then use later.
Money makes the business world go round, so take care of yours by avoiding the mistakes listed above.
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